A Commitment Forged In Steel

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Amidst all the signs of collapse emanating from the giants of the U.S. steel industry, a quiet, almost unnoticed revolution is taking place in the steel-mill towns of the Midwest -- a revolution that could well transform this most basic of basic industries. For generations the near-exclusive plaything of conglomerate deal-makers and corporate managers, the steel industry is reverting to the entrepreneur, a change that brings new hope to the devastated industrial heartland.

"We are making the future of American steel right here," says one of the leading revolutionaries, Tom Sigler, president of Continental Steel Corp. in Kokomo, Ind. "What's needed is the entrepreneur who is committed to this business and willing to see it through the long haul. The people who are going to make the difference are the entrepreneurs and the workers, the guys getting their hands dirty."

At Continental, Sigler is trying to turn around an 87-year-old company that has been fighting its way back from bankruptcy since 1981. Once among the Midwest's best-managed small steel companies, Continental is still reeling from the ill-effects of almost 15 years of systematic neglect by its former owner, Penn-Dixie Industries Inc., a New York-based conglomerate. Even today, most of the company's plant and equipment remain woefully out of date. In some sections of the aged, clammy mill, the mud is often so deep that workers have to slosh around in rubber boots. Despite recent increases in sales and efficiency, the company continues to lose over $1 million a month on sales that are expected to total less than $150 million in 1983.

Key to Sigler's comeback strategy -- and to the strategy of other new steel entrepreneurs such as Cliff Borland of Newport Steel Corp. -- is a bold attempt to seize upon the large, local-market niches created by the recent closings of numerous midwestern steel mills by giant companies. Sigler and Borland have consciously modeled themselves on entrepreneurs like Ken Iverson of North Carolina-based Nucor Corp., one of the many thriving, small, and efficient market-driven "minimills" that have risen throughout the Sun Belt during the last two decades. These midwesterners hope to create a "second wave" of entrepreneurial steel companies in the nation's troubled heartland.

"Right now, Ken Iverson is The Force in steel," Sigler maintains. "He's shown that the small companies with the new technology are showing the way -- not the Inlands or U.S. Steels. He's shown that despite all you hear, there's still a future in steel."

Like the "first wave" minimills that flooded Sun Belt markets and were virtually ignored by the majors, "second wave" companies such as Continental seek to build on local markets. From Kokomo, a city of 50,000 people 50 miles north of Indianapolis in the industrial heartland, Continental is within easy reach of the predominant U.S. market for wire products, which make up 85% of Continental's product line. Closings by five major companies in the past 10 years have reduced wire capacity by more than 900,000 tons. Much of that capacity is currently being replaced by suppliers as far away as South Carolina, Texas, and Trinidad. By purchasing wire produced in nearby Kokomo, major midwestern wire converters, appliance manufacturers, and spring makers can save as much as 10% on transportation costs alone, a central point in marketing director Rex Fager's recent successful campaign to boost sales at Continental.

To tap this lucrative market more effectively, Sigler, with the approval of Continental's new, locally oriented board of directors, has committed the company to a modernization scheme of around $37 million that could greatly increase the quality and range of the plant's wire products. With the inclusion of a new rod mill and a continuous caster, Sigler believes Continental could soon emerge as the Midwest's most competitive steel wire company. If the new rod mill opens in spring 1984, as planned, Pierre Stanis, Continental's financial adviser, projects sales will rise to at least $200 million by 1985, enough to turn a chronic money-loser into a highly profitable company.

"With all the new equipment, just give us a schmucky economy and we'll still make a good $10 million a year by the mid-1980s," Stanis predicts brashly. "Give us another steel depression and we'll outlast 95% of the people out there. This is becoming one hell of a strong company.

But Stanis, Sigler, and other top managers at Continental believe that ultimately the company's comeback may hinge on developing a new, cooperative relationship with its production workers. The recently approved pact with the company's union, for instance, places Continental's wage rates as much as 20% below those of the Big Eight steel giants. At the same time, Continental initiated a stock option program that, by the end of the decade, could give the 1,250 union workers up to 35% control of the company. To Sigler, the new union agreement epitomizes the unique symbiosis between labor and management that is absolutely essential for the survival of the U.S. steel industry.

"Although the technology may seem pretty basic, the changes of approach we are instituting are as radical as anything they do at Apple Computer," Sigler says, between sips of coffee in his wood-paneled Kokomo office. "What's needed is an entrepreneur who can communicate with the guys in the plant that it's your life as well as theirs, that you are really serious about steel. The guys at U.S. Steel, a David Roderick [chairman of U.S. Steel Corp.], don't see the people down in the mill. They're too distant. They're too big. They don't have the commitment."

"Commitment" is perhaps the one thing that most differentiates Tom Sigler and "second wave" steel entrepreneurs from their counterparts at the giant steel companies. Ever since Sigler took his first job at a mill, before he was 20 years old, steel has been his life and passion. Starting as a workman, he rose through the ranks at Detroit's McClouth Steel Inc., becoming plant manager at the company's huge Trenton, Mich., works. Yet he has retained strong ties to the often harsh realities of life within the mill. Sigler still carries scars from his legs to the top of his skull from a furnace explosion that nearly killed him 30 years ago.

Despite his own travails and the worst steel recession since the 1930s, Sigler remains drawn to "the mystique" of steel -- the hum and crackling of the furnace, the bands of red-white heat, the craftsman's pleasure in forging perfect cold steel from a smoldering inferno. As do many veteran steel men, Sigler, who works 12 hours a day with neither breakfast nor lunch, traces the tragedy now enveloping most midwestern mill towns to the lack of any such enthusiasm for steel on the part of the new generation of MBAs, lawyers, and accountants who increasingly dominate the industry's largest companies.

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